4 research outputs found
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Assessing market attractiveness for mergers and acquisitions: the M&A Attractiveness Index Score
This paper presents a new scoring methodology designed to measure a country's capability to attract and sustain business investment activity in the forms of cross-border inflow and domestic mergers and acquisitions (M&A). We compute a theoretically grounded Index of Attractiveness for M&A purposes based on groups of country development factors which have been identified as key drivers of corporate investment activity in economics, finance and management literature. By using the Index, which has been successfully tested against country-level M&A activity in a time series analysis, we show that the drivers of M&A activity differ significantly at different stages of country maturity. Specifically, for mature countries, the quality of their regulatory systems, political stability, socio-economic environment and the sophistication of their physical infrastructure as well as the availability of sizeable assets all determine differences in country-level M&A volume and value activity. For countries at the transitional stage, it is instead their economic and financial health, socio-economic environment, technological developments and the quality of their infrastructure and the availability of sizeable assets which drive M&A activity. We also prove the predictability power of the Index, by a set of Granger causality tests, showing not only how country-level development drives future M&A activity but also how, to some extent, the inverse relationship is also true, i.e. that M&A activity can contribute to country development
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Learning from your investors: can the geographical composition of institutional investors affect the chance of success in international M&A deals?
We produce new evidence on whether management which is keen to make foreign acquisitions can benefit from consultation with information-intensive institutional investors who have expertise in the target foreign markets. This research suggests that, in such instances, management should recognise the benefit of effective two-way communication before embarking on such costly strategies. Consistent with theoretical literature, we propose that this can be explained by the fact that complex valuation information is dispersed among many economic agents and management may only have limited access to such data. This research shows that the likelihood of both cross-border deal completion and medium-term cross-border deal success through time depends upon management learning from and getting the support of key institutional investors with regional (foreign) expertise. The theoretical information economics model presented by Dye and Sridhar in 2002 states that the information flow between management and capital markets should be viewed as two way. This study offers empirical evidence in support of their theory. This study offers insights into the positive effect of establishing a proactive investor relations programme for the recruitment of dedicated foreign institutional investors before embarking on cross-border M&A. The results indicate that management should closely monitor the share register and identify those investors who are transient and those who are, in contrast, dedicated. Attention then needs to be directed to establishing effective communication with the dedicated investors with regional expertise
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Allocative efficiency of internal capital markets: evidence from equity carve-outs by diversified firms
We examine whether equity carve-outs (ECOs) lead to improvements in the functioning of the internal capital markets (ICM) of diversified firms. Divestitures, including spin-offs, sell-offs, and equity carve-outs, can be employed by firms to improve allocative efficiency. Equity carve-outs, unlike other forms of divestiture, leave the parent’s ICM largely intact but provide the opportunity to enhance internal and external corporate governance mechanisms that can improve the parent’s ICM. Using a US sample of 354 equity carve-outs completed between 1980 and 2013, we find that the allocative efficiency of parents is augmented significantly following transaction completion. This increase in allocative efficiency is driven by improvements in both the external and internal governance characteristics of parent companies, consistent with the expectation that motivates equity carve-outs